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The SEC approved on February 6, 2006, the Public Company
Accounting Oversight Board’s (PCAOB) Auditing Standard no. 4 (
www.sec.gov/news/digest/dig020706.txt ; www.pcaobus.org/news_and_events/
). This standard provides guidance for a standalone engagement
that is voluntary and performed only at the request of management. It
provides direction and establishes requirements that apply when an
auditor is engaged to report on whether a previously reported material
weakness in a company’s internal control over financial reporting
continues to exist as of a date specified by its management. To
facilitate the implementation of the standard, the SEC is allowing the
PCAOB 90 days from the date of the commission’s order to issue a clear
and concise outline of the affirmative audit steps set forth in the
standard.
The Federal Financial Institutions Examination Council
(FFIEC), on behalf of the Federal Reserve System, the Federal Deposit
Insurance Corp., the National Credit Union Administration, the Office
of the Comptroller of the Currency and the Office of Thrift
Supervision, issued a final advisory that instructs financial
institutions not to enter into agreements such as external audit
engagement letters that contain “unsafe and unsound” limitation of
liability provisions regarding audits of financial statements and
internal control over financial reporting (
www.ots.treas.gov/docs/4/480217.pdf ). The advisory includes
examples of such inappropriate provisions and is effective for
engagement letters executed on or after February 9, 2006. While the
guidance does not apply to previously executed engagement letters, the
FFIEC encourages financial institutions subject to multiyear audit
engagement letters to amend them to be consistent with the advisory
for periods ending in 2007 or later. The advisory reflects earlier
comments from the AICPA in support of engagement letters that limit an
auditor’s liability to the client for punitive damages, provided it
remains liable for actual damages.
